Employers hoping the U.S. Supreme Court would rein in federal agency rulemaking will be disappointed by the Court's opinion in Perez v. Mortgage Bankers Association issued this morning. In the decision, which was consolidated with Nickols v. Mortgage Bankers Association, the Court held that agencies do not need to provide notice to the public and solicit input before reversing course on their own interpretive guidance.
There are two types of federal agency rules: legislative and interpretive. Under the Administrative Procedure Act (APA), legislative rules have the force and effect of law, and are therefore binding on employers. These types of rules are subject to traditional notice-and-comment periods, during which the agency publishes a notice of proposed rulemaking in the Federal Register, and stakeholders are invited to provide input on the proposal. Agencies are required to take all comments into consideration in formulating the final rule, and any amendments to the rule are similarly subject to notice-and-comment requirements. Interpretive rules, in contrast, are considered to be the agencies' explanations of their own rules or laws they are charged with implementing and enforcing. These rules often take the form of enforcement guidance, FAQs, agency manuals, opinion letters and interpretive bulletins. As the Court noted, the absence of a notice-and-comment obligation makes the process of issuing interpretive rules comparatively easier for agencies than issuing legislative rules. Critics of such interpretive rules have claimed that the lines between legislative and interpretive rules are often blurred, and that agencies improperly go the interpretive guidance route to avoid notice-and-comment requirements. Moreover, it is difficult to rely on interpretive guidance when agencies can arrive at the opposite conclusion in subsequent documents.
In the case at hand, the Department of Labor in 1999 and 2001 issued opinion letters stating mortgage loan officers were not overtime-eligible under the Fair Labor Standards Act. Following the publication of amended regulations governing the FLSA's administrative exemption in 2004, the DOL in 2006—at the Mortgage Bankers Association's (MBA) behest—issued an opinion letter reaffirming the earlier opinion letters that mortgage loan officers fell within the FLSA's administrative exemption, and were thus not entitled to overtime. Four years later, the DOL reversed itself, stating such officers are indeed entitled to overtime under the FLSA. These DOL interpretations were issued without notice and comment.
The MBA sued, claiming the agency was required to do so pursuant to precedent known as the "Paralyzed Veterans doctrine." Under this doctrine, if an agency makes a significant change to an interpretive rule, it must do so via the notice-and-comment process. The D.C. Circuit, relying on this doctrine, found in favor of the MBA. On appeal, the question before the Supreme Court was "whether a federal agency must engage in notice-and-comment rulemaking pursuant to the Administrative Procedure Act before it can significantly alter an interpretive rule that articulates an interpretation of an agency regulation."
The Supreme Court responded in the negative and reversed the lower court's decision, holding that the Paralyzed Veterans doctrine is "contrary to the clear text of the APA’s rulemaking provisions, and it improperly imposes on agencies an obligation beyond the 'maximum procedural requirements' specified in the APA." The Court also concluded that MBA waived its argument that the 2010 Administrator’s Interpretation should be classified as a legislative rule.
The takeaway from the Court's decision is that so long as the agency's rule is indeed an interpretive rule – an issue that was not in dispute in this case – the agency will not be required to use notice-and-comment procedures when it amends or repeals that interpretive rule. A more detailed discussion of this case and its implications for employers will be forthcoming.